Electricity 101: Operations and Recent Statistics

! January 2013 !

Legislative advertising paid for by: John W. Fainter, Jr. President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 Austin, TX 78701 phone 512-474-6725 fax 512-474-9670 www.aect.net

AECT Principles!

AECT is an advocacy group composed of member companies committed to: - Ensuring a modern, reliable infrastructure for the supply & delivery of electricity. - Supporting efficient competitive markets that are fair to customers and market participants. - Supporting consistent and predictable oversight and regulation that will promote investment and ensure the stability of Texas electric industry. - Promoting an economically strong and environmentally healthy future for Texas, including conservation and efficient use of available resources. AECT member companies remain dedicated to providing Texas customers with reliable service and are committed to the highest standards of integrity.
The Association of Electric Companies of Texas, Inc. (AECT) is a trade organization of investorowned electric companies in Texas. Organized in 1978, AECT provides a forum for member company representatives to exchange information about public policy, and to communicate with government officials and the public. For more information, visit www.aect.net.

U.S. Divided into Eight! Reliability Regions!

The eight reliability regions in the

continental U.S. are subject to the oversight and enforcement authority of the North American Electric Reliability Corporation (NERC), which is subject to the Federal Energy Regulatory Commissions (FERC) oversight. NERC is responsible for developing standards to ensure and improve reliability for delivery of electricity on the bulk power system.

FERC NERC

Electric systems in Texas are located

within four separate reliability regions: - Texas Reliability Entity (TRE), which oversees participants in the Electric Reliability Council of Texas (ERCOT); - SERC Reliability Corporation; - Southwest Power Pool (SPP); and - Western Electricity Coordinating Council (WECC).

(ERCOT)

AECT Companies! Within ERCOT!

Retail Electric Providers

Transmission and Distribution Utilities

Generation Companies

AECT Companies! Outside of ERCOT!

SERC Reliability Corporation

Southwest Power Pool (SPP)

Western Electricity Coordinating Council (WECC)

Contents!

Slide 7: Slide 26: Slide 39: Slide 49: Slide 54: Slide 64: Slide 76: Slide 86: Slide 94:

AECT Member Companies Electric Market Structures in Texas Texas Wholesale Electric Market ERCOT Generation Mix Types of Generation: Benefits and Challenges Emissions and the Environment Transmission and Distribution Utilities Energy Efficiency Competitive Retail Electric Market in ERCOT
6 !

AECT Member Companies !

7 !

AEP SWEPCO!

Vertically Integrated Utility!

Southwestern Electric Power Company, headquartered in Shreveport, LA, serves 460,000 customers in East Texas and the Texas Panhandle, Northwest Louisiana, and the western edge of Arkansas. SWEPCO has been providing low-cost, reliable electricity to customers since 1912. SWEPCO is a vertically integrated company operating as a member of the Southwest Power Pool.

8 !

AEP Texas!

Transmission & Distribution Utility!

AEP Texas is connected to and serves more than 900,000 electric consumers in the deregulated Texas marketplace. As an energy delivery company, AEP Texas delivers electricity safely and reliably to homes, businesses and industry across its nearly 100,000 square mile service territory in south and west Texas.

9 !

CenterPoint Energy!

Transmission & Distribution Utility!

CenterPoint Energy maintains the wires, poles and electric infrastructure delivering service to more than 2 million consumers in its 5,000-square-mile electric service territory in the Houston metropolitan area. While CenterPoint Energy employees ensure the reliable delivery of electricity from power plants to homes and businesses, the company neither generates power nor sells it to retail customers.

10 !

Constellation and StarTex Power! Retail Services!

Constellations retail companies serve more than two-thirds of the Fortune 100, approximately 100,000 business and publicsector customers and approximately 1 million residential customers across the nation. Constellations retail brands include Constellation NewEnergy, Division, StarTex Power and BGE Constellation NewEnergy Gas HOME. In Texas, Constellations retail entities serve over 150,000 residential and business customers.
Competitive Areas of Texas

11 !

El Paso Electric Company! Vertically Integrated Utility!

El Paso Electric is a vertically integrated utility serving approximately 380,000 customers in the Rio Grande Valley in west Texas and southern New Mexico. El Paso Electric is an operating member of the Western Electricity Coordinating Council.

12 !

Entergy Texas!

Vertically Integrated Utility!

The Entergy Texas service area starts at the southeast Texas/Louisiana border and stretches up into the piney woods of east Texas, down to the Gulf of Mexico and across to the lake country north of Houston. Entergy Texas serves approximately 385,000 customers in 26 counties.

13 !

Exelon Generation!

Electric Generation Company!

Exelon Generation owns and controls about 34,650 megawatts of electricity generation capacity from a diverse portfolio that includes the nations largest fleet of nuclear power plants. The company maintains strong positions in the Midwest and MidAtlantic regions. In Texas, it owns and controls about 4,400 MW of natural gasfired and wind generation, with plants in Dallas, Fort Worth, Granbury, LaPorte, Odessa and Wharton
14 !

GDF SUEZ!

Electric Generation Company!

GDF SUEZ owns nearly 15,000 MW of electricity generation nationwide, including over 4,000 MW in Texas. The company employs 500 Texans and maintains its North American headquarters in Houston. GDF SUEZ has a diverse portfolio of generation, including 589 MW of operational wind, hydro and biomass facilities nationwide.

15 !

Green Mountain Energy! Retail Electric Provider!

Green Mountain Energy Company is the nations leading competitive retail provider of cleaner energy and carbon offset solutions. The company has two primary business units: residential and commercial energy. Green Mountain offers retail customers in competitive markets in Texas cleaner energy via direct access retail electric service.
Competitive Areas of Texas

16 !

Lone Star Transmission!

Transmission Company!

Lone Star Transmission, a subsidiary of NextEra Energy, has received approval to construct, operate and maintain Competitive Renewable Energy Zone transmission facilities in Texas. The company is building a 320mile-long transmission facility that will increase reliability and lower prices for Texas consumers.

17 !

Luminant!

Electric Generation Company!

Luminant is a competitive power generation business, including mining, wholesale marketing and trading, construction and development. It has over 18,300 MW of generation in Texas, including 2,300 MW of nuclear and 5,800 MW of coal-fueled generation capacity, and is the largest purchaser of wind-generated electricity in Texas and fifth largest in the U.S.

18 !

NextEra!
Electric Generation Company!

NextEra Energy Resource owns an extremely diverse portfolio of nearly 18,000 MW of generation nationwide, including wind, solar, hydro, natural gas, and nuclear power. In Texas, NextEras footprint includes 5,243 MW of generation, including two combinedcycle natural gas plants and 15 wind facilities.

19 !

NRG Energy!

Electric Generation Company!

NRG Texas is the second largest electrical generator in Texas with more than 1,100 professional employees operating a diverse generation portfolio of almost 11,000 megawatts of power.

20 !

Oncor!

Transmission & Distribution Utility!

Oncor is a regulated electric distribution and transmission business that delivers reliable electricity to consumers. Oncor operates the largest distribution and transmission system in Texas, providing power to more than 3 million electric delivery points over more than 115,000 miles of transmission and distribution lines.

21 !

Reliant Energy!

Retail Electric Provider!

Reliant Energy, Inc., based in Houston, Texas, provides electricity and energyrelated products to more than 1.8 million retail and wholesale customers in Texas and in the Mid-Atlantic Region. As one of the largest electricity providers in Texas, Reliant works hard to provide its customers with competitive electric prices, innovative products and unmatched customer service for their homes and businesses.
Competitive Areas of Texas

22 !

Texas-New Mexico Power Co.! Transmission & Distribution Utility!

Currently, TNMP provides electric service to 76 cities and more than 230,000 customers throughout Texas. TNMP is owned by PNM Resources, an energy holding company based in Albuquerque, New Mexico.

23 !

TXU Energy!

Retail Electric Provider!

TXU Energy is a market-leading competitive retailer that provides electricity and related services to more than 2 million electricity customers in Texas. TXU Energy offers a variety of innovative products and solutions, including 24/7 customer service, competitively priced service plans, energy efficiency options and renewable energy programs.
Competitive Areas of Texas

24 !

Xcel Energy!

Vertically Integrated Utility!

Xcel Energy owns Southwestern Public Service Company, a regional electric utility that provides service to about 400,000 persons in a 45,000 squaremile area comprised of the South Plains and Panhandle of Texas, and eastern New Mexico.

25 !

Electric Market Structures in Texas !

26 !

History of Electric Utility Regulation in Texas!

Pre-1975
Cities regulated electric utility service and rates. Generally, a declining cost industry rate applications most often filed to decrease rates.

1975
Inflation, construction costs and fuel costs drive electricity rates up. 64th Texas Legislature enacts Public Utility Regulatory Act (PURA) to implement state regulation of electric utility service and rates (Cities permitted to retain original jurisdiction). Service area, transmission line and generating plant certification. Rate regulation (based on cost of service plus reasonable return on investment). Rates based on historical test year costs and original costs of infrastructure, less depreciation. Service quality regulation. Customer protection.

27 !

History of Electric Utility Regulation in Texas!

1976-1995
1978 U.S. Fuel Use Act required utilities to discontinue use of natural gas and encouraged the use of coal and nuclear for fuel. Inflation, volatile fuel costs and the need to add new generating capacity continue to increase electricity rates. Rate proceedings at PUC become increasingly adversarial. Consumer groups concerned about frequency and amount of rate increases. Utilities concerned about increasingly large PUC cost disallowances that are at odds with the regulatory compact and erode rates of return. Large customers tire of subsidizing other ratepayers seek opportunities to by-pass regulated rates and obtain choice of suppliers. Cogeneration/self-generation. Advocate wholesale competition and transmission open access. Advocate retail wheeling. Natural gas was favored again when the 1978 U.S. Fuel Use Act was repealed in the 1990s.

28 !

Steps to Electric Competition! In Texas!

Jan. 2007

End of price-tobeat

Jan. 2005
Jan. 2002 July 2001

Texas Choice pilot program begins Retail choice begins in ERCOT Affiliate REPs allowed to offer nonprice-tobeat prices

June 1999 May 1995

Sept. 1999

ERCOT Electric rates frozen

Wholesale competition legislation passed (SB 373)

Retail competition legislation Passed (SB 7)

29 !

Wholesale and Retail Electric Competition Were Passed ! With Broad, Bipartisan Support!
Senate Bill 373, which opened the wholesale electricity market in Texas, passed in 1995 when the Democrats were the majority party in the House and Senate.
The Speaker of the House and the Lieutenant Governor were both Democrats, and the bill sponsors and authors were both Democrats.

Senate Bill 7, which opened the competitive market, passed in 1999.

The Senate and the Lieutenant Governor were Republican, but the House was still majority Democrat. The House sponsor and author of the bill and the House Speaker in 1999 were both Democrats. Senate Bill 7 passed the House with a vote of 144 Ayes and 4 Nays.

It was a bipartisan measure: 74 of the Aye votes were from Democrats, while 68 were from Republicans.
The bill passed the Senate with a vote of 28 Ayes and 3 nays.

30

Steps to Competition:! Wholesale Competition!

Senate Bill No. 373 enacted in May 1995

Required utilities to provide non-discriminatory open access transmission to support wholesale competition in ERCOT. Recognized new, unregulated participants in ERCOT wholesale market. Exempt wholesale generators Power marketers

Allowed non-utility wholesale market participants to offer market-based prices in ERCOT. Deregulated electric cooperative distribution rates.

Note: Non-ERCOT areas are subject to FERC jurisdiction for wholesale services, including transmission services.

31 !

Steps to Competition:! Retail Competition!

ERCOT market restructuring legislation, Senate Bill 7, passed in 1999
Initiated competition in ERCOT retail markets beginning January 2002. Municipally-owned utilities and electric cooperatives allowed to opt-in. Included environmental and energy efficiency provisions.
Required reduction of nitrogen oxide (NOx) emissions from older power plants by 50%, and sulfur dioxide emission from coal-fired facilities by 25%. Utilities required to fund energy efficiency programs equal to at least 10% of each years annual growth in demand.

1999 - 2001 Preparation for retail competition.

Electricity rates frozen. ERCOT develops systems required to support competition. PUC promulgates competition rules. PUC determines rate unbundling cases.

July 2001 Retail competition pilot project begins.

32 !

Steps to Competition:! Transition Period!

January 2002-2006 Transition Period
Affiliated generators Required to make 15% of their power available to non-affiliated retail providers During first two years, limited to guaranteed market price for power as projected by PUC Given incentives to install environmental clean-up equipment Transmission and Distribution Utilities Initial rates set using estimated/generic costs Recovery of stranded and other transition costs authorized but delayed until 2004 True-up proceeding
Securitization bonds lower cost to customers

Affiliated retail electric providers Required to lower base rates by six percent (Price to Beat)
Adjustable only for increases in natural gas prices Price to Beat remains in place until 12-31-06

No price competition allowed in former service area until 2005

33 !

Structural Unbundling!
Incumbents required to separate business activities into the following units.
Power generation company. Retail electric provider. Transmission and distribution utility.

Generation and retail businesses are not regulated utilities.

Power Generation Companies must be registered with PUC. Retail Electric Providers must be certified by PUC.

Transmission and distribution businesses remain regulated utilities. Methods for separation of business activities.
Creation of separate non-affiliated companies. Creation of separate affiliated companies owned by a common holding company. Sale of assets to a third party.

Each ERCOT utility chose different models. Code of conduct rules enforce separation requirements.
34 !

ERCOT: Separate companies provide retail, transmission & distribution and generation services!

Power Flow Financial Flow Regulated

In competitive markets, consumers have multiple retail electric providers (REPs) and service plans to choose from. Wholesale and retail prices are set by competitive market forces, while the PUC sets transmission and distribution rates.

35

ERCOT: Separate companies provide retail, transmission & distribution and generation services!

Power Flow Financial Flow Regulated

Because wholesale electric prices are set by the competitive market, the risks associated with the cost of construction, operations and maintenance of a generation plant are borne entirely by the generator and its investors, not by end-use customers.
36

Outside ERCOT: A single company provides retail, transmission & distribution and generation services in each area!

Power Flow Financial Flow Regulated

In fully regulated markets, the PUC sets retail rates charged to end-use customers. Each of these service areas is part of multi-state electric grids, with differing regulations. In many cases, vertically integrated utilities purchase wholesale power from certain unregulated entities.

37

Outside ERCOT: A single company provides retail, transmission & distribution and generation services in each area!

Power Flow Financial Flow Regulated

New power plants in these regions can be built by both regulated entities and certain unregulated entities or qualifying facilities. Regulated utility power plants, however, must be approved by the PUC after a rigorous review of need and siting.
38

Texas Wholesale Electric Market !

39

The Competitive Wholesale Market: A Success Story !

Competition has brought greater efficiency to the wholesale market

Generators shoulder the risk of building new power plants, bringing efficient, cost-effective generation to consumers. New power plants produce more electricity per unit of fuel. New power plants include modern environmental emissions controls.

The competitive market is in the public interest

Operational efficiency of a competitive market helps push wholesale prices downward. No market structure is more effective at ensuring efficient operations than a competitive one.

Policy decisions should be focused on maintaining vibrant competition

Texas leaders should support policies that maintain the competitive market. The competitive market will bring forward the right mix of technology and fuel type based on environmental choices by policymakers.
40 !

Permitted and Operating Electric Generating Units in Texas

41 !

ERCOT Wholesale Market Management!

System Reliability
ERCOT oversees system reliability. ERCOT is part of national reliability council. ERCOT protocols, approved by PUC, mandate system reliability standards that all market participants must follow.

Statute and Rules Address Market Power and Generation Merger Issues
Independent Market Monitor oversees wholesale market operations. Generating capacity owned and controlled by a Power Generation Company limited to 20% of installed generating capacity capable of delivering power to a power region. Administrative penalties for market power abuse were reviewed and updated during the 79th Regular Session. Mergers of Power Generation Companies subject to PUC review.

Market Design
ERCOT will transition to a Nodal Market in 2009 as a result of PUC rulemaking. The change is expected to bring cost-savings and additional efficiency to the market by enhancing market transparency and allocating costs more accurately to market participants.
42 !

Wholesale Market ! Management Outside ERCOT!

System Reliability
Larger, multi-state Councils (SERC, SPP, WECC) oversee system reliability. Each is part of national reliability council. Protocols, approved by the Federal Energy Regulatory Commission (FERC), mandate system reliability standards that all market participants must follow.

Wholesale market operations overseen by FERC

43 !

Increased Population Drives Future Electric Consumption!

Texas Projected Population Growth (millions)

40
To meet increases in electric load created by Texas rapid population and economic growth, Texas will require additional power, transmission and distribution, customer demand response and energy efficiency.

1980-2040
37.0 million 32.9 million 28.9 million 25.1 million 20.9 million 17.0 million 14.2 million

35 30 25 20 15 10 5 0 1980 1990 2000 2010 2020

2030

2040

Sources: U.S. Census, Texas State Data Center 0.5 scenario 44 !

Electric Consumption Continues to Grow in ERCOT!

Note: The peak in electric consumption in 2000 was due to an exceptionally hot summer.

Source: ERCOT, Report on Existing and Potential Electric System Constraints and Needs, January 2012

45 !

Peak Demand Also Growing, Requiring Additional Investment Long-Term!

Source: ERCOT, Report on Existing and Potential Electric System Constraints and Needs, January 2012

46 !

ERCOT Restructuring Spurred ! Massive Generation Investment!

90-97 addi1ons: 5 GW
Enabling Legisla1on

98-11 addi1ons: 47 GW

The competitive market has steadily added new generation and greater efficiency to the wholesale market. Generators in the competitive market shoulder the risk of building new power plants, bringing efficient, costeffective generation to consumers.
47 !

In rate base

Not in rate base

Sources: Energy Velocity, NERC, PUC

ERCOT Forecasts That Reserve Margins Will Decline Below Target Levels
ERCOT summer reserve margin1 2002-2017E; percent
Historical forecasts2 Dec 2012 forecast

Other target reserve margins3

CAISO MISO NYISO PJM ERCOT 15.0% 17.4% 15.5% 15.5% 13.75%

13.75% target reserve margin provides a buer against de-rates, forced outages, wind variability, forecast error, and weather related spikes
1 Based on ERCOT Capacity, Demand and Reserves (CDR) Reports, as amended 2 Historical reserve margins based on projecAons for each year prior to summer peak season, based on the formula in eect at the Ame

OperaBng reserve on Aug 3, 2011

48 !

3 CAISO is the California Independent System Operator; MISO is Mid-West ISO; NYISO is New York ISO; PJM is ISO for13 state region including PA, NJ, MD.

ERCOT Generation Mix !

49

ERCOT Generation Mix!

The generation technology mix is an outcome of a robust competitive wholesale market and environmental policy decisions. In addition to the price of fuels and the cost of technology, environmental and siting issues impact choices made by generation developers. Coal, including lignite, is an important fuel in the ERCOT electric generation mix. Coal is the most abundant fossil fuel in the United States, with an estimated 200 year supply remaining (per the Energy Information Administration (EIA)). Electricity produced from Texas lignite exceeds the entire generation of 28 states individually.
Texas lignite accounts for about 45% of the coal used in the state for electricity. Texas lignite mining industry is a key part of the state economy, providing over 33,000 permanent jobs and contributing about $10.5 billion in annual Total Expenditures.

Sources: EIA, National Mining Association, The Perryman Group, PUC

50 !

Gas on the Margin in ERCOT Nearly Year-Round

Demand Curve - Winter Scenario
60000
60000

Demand Curve - Summer Scenario

50000

50000

40000
MW Load
MW Load

40000

30000

30000

20000

20000

10000

10000

0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Hour Nuclear Coal Wind Natural Gas

0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Hour Nuclear Coal Wind Natural Gas

Examples are purely illustrative

There are multiple types of power plants with different operations in ERCOT that are operated on different schedules.
Because of their lower marginal costs, nuclear and coal-fired power plants in ERCOT operate approximately 90 percent of the time. In contrast, natural gas-fired power plants are ramped on and off, depending upon demand. Wind-generated electricity is only intermittently available, depending on wind conditions.

Some natural gas-fired generation is required to operate at all times in the ERCOT region to meet demand.
Natural gas-fired generation sets the market price of wholesale electricity in ERCOT. Natural gas-fired units that are used to meet peak demand tend to be older units that cost more to operate.
51 !

Business Climate for Generators in ERCOT

In ERCOT, generation companies assume all of the financial risk included in a new generation projects. The decision to build new generation thus depends upon whether the generator believes the electricity can be sold at a price to recoup construction costs, cover operations and maintenance costs and achieve a profit. Market forces have been effective in bringing new generation to the state, with 52,470 MW of generation constructed since the advent of wholesale competition in 1995. While not all is expected to the built, the PUC reports substantial new generation has been announced, including: 7,321 MW of new coal-fired generation 5,900 MW of new nuclear generation 9,515 MW of new wind-powered generation 9,430 MW of new natural gas-fired generation Though such news is positive, market forces and legislative and regulatory certainty will ultimately dictate how much of the announced new generation is actually built.

Data source: PUC, New Electric Generating Plants in Texas, updated December 30, 2011

52 !

Texas Has the Most Installed ! Wind Energy Capacity

States With Most Installed Wind Capacity (MW)

12000

10929
10000

8000

6000

4570
4000

4536 3153

3055

2717

2699

2400 1877 1805

2000

TX

CA

IA

OR

IL

MN

WA

OK

KS

CO

21% of the nations installed wind generation capacity is located in Texas.

Source: American Wind Energy Association, Through Q3 2012 53 !

Types of Generation: Benets and Challenges !

54

Three Key Factors Affecting Choices for New Generation

Wholesale Market

Cost of Construction and Fuels

55 !

Coal-Fired Generation

Type of Generation + Coal-fired plants provide baseload generation, by running approximately 90 percent of the time. Environmental Issues - Greater air emissions than natural gas-fired plants, including rate of about twice the CO2 per kWh generated. - Risk of higher costs due to future carbon-capture requirements. Cost of Construction and Fuels + Currently, pulverized coal generation is economical to build based on current natural gas prices. + Long-term domestic supply of coal, including lignite. + Fuel cost is relatively low - High initial capital costs relative to natural gas-fired plants.
56 !

Natural Gas-Fired Generation

Type of Generation - Natural gas plants, such as combined-cycle plants, can provide baseload generation, but demand conditions in ERCOT result in a lower capacity factor than for coal-fired or nuclear-powered generation. + Other simple-cycle natural gas plants have quick start-up and shut-down times to allow them to meet peak demand. Environmental Issues + Lowest air emissions among fossil fuels. + Newest power plants operate more efficiently, burning less fuel per MWh of generation. Cost of Construction and Fuels + Low initial capital costs. - When natural gas prices are high, gas-fired power plants are expensive to operate.

57 !

Nuclear-Powered Generation

Type of Generation + Nuclear-powered plants provide baseload generation by running approximately 90 percent of the time. Environmental Issues + No air emissions. - Long-term storage of waste needs to be implemented. - Historic concerns regarding public perception of safety of nuclear power. Cost of Construction and Fuels + Lowest fuel cost of all large-scale generation. - High capital costs. - Longest permitting and construction times among generation types.

58 !

Wind-Powered Generation

Type of Generation + Wind is plentiful in certain parts of Texas. - Wind blows intermittently, making it a less reliable power source. Environmental Issues + No air emissions. - Can affect migratory birds. - Concerns about aesthetic impact. Cost of Construction and Fuels + No fuel cost. - Limited ability to replace other generation to satisfy reserve margins. - Imposes other costs on the system, such as increased ancillary service requirements, backup capacity and the need for transmission lines to reach rural wind farms.
59 !

Solar Generation

Type of Generation + Solar power is generally reliable, but intermittent, as it depends on certain levels of sunlight. - Plants are generally small in scale. Environmental Issues + No air emissions. - Large areas of land needed for effective solar arrays. Cost of Construction and Fuels - Can have 15 to 20 times the capacity cost of natural gas-fired generation + No fuel cost. - Cannot be used to replace other generation to satisfy reserve margins. - Imposes other costs on the system, such as the need for transmission lines, since large-scale solar power plants would be located in areas far from population centers.
60 !

Biomass and Landfill Gas Generation

Type of Generation + Biomass and landfill gas generation generally operates reliably. - Plants are generally small in scale. Environmental Issues - Plants burning biomass can have high CO2 emissions. + Landfill gas facilities reduce methane greenhouse gas emissions. - Generation is difficult to permit and site. Cost of Construction and Fuels - Requires high capital and operating costs when compared with fossil fuel-fired generation - Often located far from population centers, requiring high transmission costs

61 !

Hydroelectric Generation

Type of Generation + Hydroelectric power is reliable to operate, except during drought. - Texas has very little potential for new hydroelectric power generation. Environmental Issues + No air emissions. - Can kill fish. Cost of Construction and Fuels + Once built, hydroelectric power is among the least expensive forms of power, as it has no fuel costs. - High capital costs

62 !

Energy Efficiency and Demand-Side Management

Type of Technology + Several cost effective solutions available. - Success requires broad implementation. Environmental Issues + Reduces emissions that would otherwise accompany fossil fuel usage.

Cost of Construction and Fuels + Can improve cost levels for residents and customers. + Reduces need for building new power supply.

63 !

Emissions and the Environment !

64 !

Texas is Already Leading the Way in Clean Power Plants

Texas has the largest emissions of any state since it produces 80% more power than the next ranked state.

0.347 NM

0.237 OK

0.194 AR

0.095 TX

0.137 LA

Area National
EPA Clean Air Markets Division 2010 Acid Rain Program Data

2010 NOx Emission Rate Averages (lbs/ mmBtu) 0.156 0.095

65 !

Texas

Electric GeneratorNOx Reductions Achieved Under TCEQ 1-hr Ozone SIP Rules!

HGA SIP- 86% overall reduction from 1997 DFW SIP- 88% overall reduction from 1997 Beaumont SIP- 45% reduction from 1997 East Texas SIP- 51% reduction from 1997
Between 2000 and 2005, electric generating companies in Texas spent over $1 billion on NOx emission reductions alone.
66 !

Texas Electric Generating Plants Among Cleanest NOx Emitters in the Nation!

0.7

0.6

0.5

Texas has the 12th cleanest average NOx emissions rate

NOx (lb/MMBtu)

0.4

0.3 U.S. Average Outside Texas 0.161 lb/mmBtu

0.2

0.1

Source: 2011 EPA Air Markets Program Database, Acid Rain Program Only

SD NM ND UT NE OK DC WY KS CO PA MT IN MI IA KY AR VA AZ OH MN WA MO MD MS WV IL NC GA LA WI AL TN DE SC OR NH TX NY NV FL VT NJ MA ID ME CT RI CA 67 !

Texas Electric Generating Plants Among Cleanest SO2 Emitters in the Nation!

1 0.9 0.8

SO2 (lb/MMBtu)

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Texas SO2 emissions rate is well below the national average

U.S. Average Outside Texas 0.365 lb/mmBtu

Source: 2011 EPA Air Markets Program Database, Acid Rain Program Only

OH DC SD IN NH ND MI TN NE KY PA IA MO GA IL WI AL VA AR DE SC OK OR TX MD LA MS WV WY NC MN KS MA CO MT NY UT FL AZ NM NV NJ WA ME CT CA RI ID VT 68 !

State Comparison of Electric Utility Emissions! !

13 Northeast States & DC

Land Area Tons of CO2 Tons of SO2 Tons of NOx Tons of Mercury 247,175 mi2 441,987,958 1,130,312 368,392 6.1

Texas
261,232 mi2 268,483,093 426,270 143,905 5.6
69 !

Sources: CO2, NOx, SO2: 2011 Acid Rain Database; Mercury: EPA 2010 TRI database; Land Area: US Census Bureau, 2010. Sept 2012

CO2 Emissions in Context of Texas Economy!

A common refrain is that CO2 emissions generated in Texas are higher than in other states. However, it is critical to view that in the context of other truths: Texas generates more electricity than any other state; in fact, Texas produces almost 80% more electricity than the next most generating state.1 Much of the CO2 emitted in Texas results from the generation of products that are very significant to our state and nation. For example, Texas produces about:
60% of petrochemicals produced in the U.S. 30% of gasoline and diesel refined in the U.S. 10% of electricity generated in the U.S.

The dollars of gross product produced in Texas per ton of CO2 emitted is high, and it increased by more than 1000% between 1963 and 2001.2 The amount of CO2 emitted per MWh of electricity generated in Texas is lower than that of half of the states that have more than a nominal amount of coal-fired or oilfired electricity generation.3
1Source: 2Source: 3Source:

EIA, 2008 State Electricity Profiles Global Warming: What Should Texas Do? Texas Public Policy Foundation, April 2007 EPA Acid Rain Database, 2009

70 !

1995-2010 Emission Rate Trends!

Sulfur Dioxide (SO2) Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 lb./mmBtu Nation Texas 1.088 0.526 1.103 0.535 1.093 0.524 1.055 0.482 0.999 0.481 0.875 0.381 0.843 0.385 0.793 0.384 0.815 0.389 0.779 0.353 0.753 0.349 0.702 0.338 0.644 0.32 0.564 0.315 0.458 0.309 0.387 0.304

Nitrogen Oxides (NOx) lb./mmBtu Nation Texas 0.537 0.319 0.53 0.325 0.509 0.311 0.481 0.307 0.441 0.284 0.399 0.261 0.373 0.221 0.348 0.173 0.321 0.143 0.286 0.124 0.268 0.116 0.255 0.111 0.237 0.103 0.222 0.103 0.159 0.098 0.156 0.095

Carbon Dioxide (CO2) lb./mmBtu Nation Texas 198.35 160.3 196.74 174.81 194.01 172.69 191.37 167.43 191.27 168.78 191.40 166.37 189.71 165.97 188.54 166.01 189.62 168.93 188.08 166.96 187.17 166.51 186.27 165.75 184.92 166.36 186.43 171.65 183.88 166.20 183.68 169.25
71 !

EPA Clean Air Markets Division 1995- 2010 Acid Rain Program Data

Technical Feasibility of CO2 Reductions!

Technology

EIA 2008 Reference

Target

Efficiency Renewables Nuclear Generation

Load Growth ~ +1.05%/yr 55 GWe by 2030 15 GWe by 2030 No Heat Rate Improvement for Existing Plants 40% New Plant Efficiency by 20202030 None None < 0.1% of Base Load in 2030

Load Growth ~ +0.75%/yr 100 GWe by 2030 64 GWe by 2030 1-3% Heat Rate Improvement for 130 GWe Existing Plants 46% New Plant Efficiency by 2020; 49% in 2030 Widely Deployed After 2020 10% of New Light-Duty Vehicle Sales by 2017; 33% by 2030 5% of Base Load in 2030

Advanced Coal Generation

CCS PHEV DER

Chart Source: EEI and EIA

72 !

Recent Federal Environmental Activity

On August 21, a federal court vacated the Cross-State Air Pollution Rule (CSAPR), which would have required generation units to significantly reduce emissions on a short time frame.
- CSAPR would have impacted the ability of many coal-fired generation units in Texas to operate, creating additional resource adequacy concerns.

On September 13, a federal court agreed to hold in abeyance challenges to the EPA's Mercury and Air Toxics (MATS) standards while the agency reconsiders parts of the rulemaking.

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Giving Back to the Environment

AECT member companies help to improve our environment through stewardship, support for new technologies and partnership with other agencies.

Environmental Stewardship!
- Reducing releases of chlorofluorocarbons from
electrical equipment - Recycling coal combustion products - Educating schools and communities about renewable energy - Designating land and reservoirs for public recreational use - Preserving and restoring forests by planting millions of trees - Helping other industries adopt pollutionprevention plans - Launching education campaigns to help communities save energy - Creating wetlands and wildlife habitats on company properties - Reclaimed water utilization - Offering renewable energy products to retail customers

Environmental Partnerships
!

- Climate Challenge Program

- Energy Star - Energy Smart Schools - Environment Research Program - EPA SF6 Partnership program - Mickey Leland Internship Program -TCEQ Teaching Environmental Science - Green Lights - Habitat Protection - Learning From Light! - Millennium Council - Million Solar Roofs - National Energy Education Development (NEED) Project - Natural Gas Star

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Selected Environmental Programs and Fees

The electric industry is among the most heavily regulated in the nation, complying with hundreds of regulations and paying millions of dollars in fees annually.

Selected Current Environmental Programs

- Compliance with National Ambient Air Quality Standards
- State Implementation Plan
- NOx reductions for electric generating units
- Clean Air Interstate/Clean Air Mercury Rules
- New Source Review (NSR) Prevention of Signicant Deterioration
- Non-attainment NSR, including offset
- State Minor NSR
- Title V and Acid rain permits
- Compliance Assurance Monitoring
- Continuous Emissions Monitoring Systems
- Toxic Release Inventory
- Monitoring cooling water
- Mass Emission Cap and Trade Program

Selected Current Environmental Fees

- Title V federal operating permit fees - Air inspection fees - Air quality permit fees - Air quality permit renewal fees - Wastewater inspection fees - Wastewater permit application fees - Water quality fees - Potable water fees - Water use permit application fees - Hazardous waste generation fees - Non-hazardous waste fees
- Low level radioactive waste fee
- Injection well fee

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Transmission and Distribution Utilities !

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TDUs Role in the Competitive ERCOT Market!

Transmission and Distribution Utilities:

Provide reliable delivery of electricity on a 24-7 basis. Invest in and build infrastructure (e.g., transmission lines, Smart Grid) to support the needs of Texas growing economy. Manage their transmission networks under the direction of ERCOT; coordinating with ERCOT on transmission planning activities. Respond to outages (e.g., storms, natural disasters) that affect the grid and restore service as quickly as safely possible. Provide key market information, such as premise information and metering services to facilitate successful operation of the ERCOT deregulated market. Provide regulated transmission and distribution services to facilitate operations of wholesale and retail business entities. Charge regulated delivery rates to REPs
Rates based on a historical cost of service including a PUC-established return on capital investment Allocation of ERCOT-wide transmission costs Non-bypassable charges include the cost to deliver electricity, System Benefit Fund, recovery of true-up costs and nuclear decommissioning expenses for existing nuclear facilities

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T&D Market Design:! ERCOT!

ERCOT Transmission
1995 amendments to the Public Utilities Regulatory Act (PURA) required PUC to ensure open access to transmission grid, allowing new independent generators to utilize transmission network. TX76RSB 7 adopted postage stamp transmission pricing structure and eliminated impact of location on transmission rates. Transmission Cost of Service (TCOS) ratemaking structure implemented and billed to distribution service providers (DSP).
DSPs recover TCOS through the TDSP delivery rate and transmission cost recovery factor (TCRF), approved by PUC.

New transmission investment is coordinated through the ERCOT regional transmission planning process and requires PUC facility certification.

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Transmission Investment in Texas

Since 2010, TDUs have invested about $870 million in the ERCOT transmission grid. ERCOT estimates that the electric grid will require adding or improving 6,693 circuit miles of transmission lines at a cost of almost $8.7 billion from 2012 through 2017 and beyond. This investment includes the cost of integrating Competitive Renewable Energy Zones (CREZs) into the competitive ERCOT market.
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Source: ERCOT, Report on Existing and Potential Electrical System Constraints and Needs, January 2012

Continued Transmission and Distribution Investment Needed Throughout Texas

According to the Texas State Data Center, 5 million new residents are expected in Texas by 2020. New generation must be delivered effectively and efficiently to population centers of the state. Texas must provide regulatory certainty and fair rates of return to ensure appropriate capital investment. Though not shown here, areas of Texas located outside the ERCOT grid are also growing, both in terms of population and economic development.

Source: ERCOT, Report on Existing and Potential Electric System Constraints and Needs, January 2012 80 !

Challenges of Transmission Line Construction

Example of Transmission Construction Process in ERCOT

While certain types of generation can be constructed quickly -- often as short as 12-18 months -- transmission lines typically take between three and five years. Generation can be brought into the market more rapidly if the siting takes advantage of the existing transmission infrastructure. Building long transmission lines can affect many landowners, often requiring a lengthy and extensive easement acquisition effort. The transmission line siting process must take into account the impact of those lines on environmentally sensitive and historically significant lands. Utility is not typically allowed to begin recovering costs until year 5 or 6.
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Distribution Investment Also Needed

The need to replace an aging distribution infrastructure to meet population and demand growth will require continued investment. It is becoming more evident that rising construction material costs are an increasingly important driver contributing to the higher actual and planned utility industry infrastructure investments. Nationwide, distribution investment is expected to be almost triple the size of projected transmission spending, according to the Edison Electric Institute. Distribution investment is likely to exceed generation and environmental capital spending, as well.

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T&D Market Design:! Non-ERCOT!

Non-ERCOT Transmission
Wholesale open access transmission rights subject to Federal Energy Regulatory Commission (FERC) jurisdiction. FERC transmission pricing reflects location of generation. FERC requires generators to bear higher cost relative to the ERCOT system of connecting with the transmission grid. Certification in Texas is with the PUC. Recently adopted PUC rules allows most non-ERCOT utilities to recover transmission investments between rate cases through a transmission cost recovery factor (TCRF).

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Competitive Renewable Energy Zones:! Legislative and Regulatory Steps

The Texas Legislature mandated steady increases in renewable power in TX76RSB 7 (1999) and TX791RSB 20 (2005).
Starting Line: 880 MW in 1999 Old Goal 1: 2,880 MW by 2009 (Achieved by 2007) New Goal 1: 5,880 MW by 2015 New Target 1: 10,000 MW by 2025 New Target 2: 500 MW non-wind renewable generation

TX791SB 20 (2005) also required PUC to:

designate Competitive Renewable Energy Zones (CREZs) in areas in which renewable energy resources and suitable land areas are sufficient to develop generating capacity from renewable technologies; develop a plan to construct necessary transmission capacity in a manner that is most beneficial and cost effective to customers; and take into account transmission constraints, the need for generation and the level of financial commitment by generators when defining CREZs.

PUC adopted Substantive Rule 25.174 in December 2006, which creates framework for determining CREZs. Texas currently has 10,939 MW of installed renewable generation capacity (Q3 2012).

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Map of Adopted! Competitive Renewable Energy Zones!

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Energy Efciency !

86

Energy Efciency in Texas:! Overview

Texas continues to be an energy leader through policies designed to improve the states energy efciency programs and bring improved technologies to the electric market.!
Utility-run programs have reduced customer consumption, thereby reducing the need for the construction of new generation.! Advanced metering provides information and opportunities that enable customers to take better control of their energy consumption and bills.! Houston and Dallas-Fort Worth ranked 1 and 2 nationally in number of homes that qualied for EPAs Energy Star designation.!

The Texas Electric Choice Act requires electric utilities to provide energy efciency programs and incentives, including efciency programs for low-income customers.!
TX80RHB 3693 raised the energy efciency goal for electric utilities from 10% of annual demand growth to 15% in 2008 and 20% in 2009.! The recent PUC recently passed a rule requiring utilities to offset 30 percent of their projected growth in demand by 2013.!

ERCOT competitive retailers are developing innovative plans and products that will help customers use less energy (e.g., customer education programs, energy audits, Internetcontrollable thermostats, etc.)!
87 !

Energy Efciency Programs Have Exceeded Goals

Total Energy Savings by Investor-Owned Utilities 2003 - 2011 !

In 2011, utilities in Texas exceeded their statewide legislative energy efficiency goals for the ninth straight year. Utilities achieved 529GWh of energy reduction and 270 MW of peak demand reduction. These energy savings correspond to an equivalent reduction of approximately 615 million pounds of carbon dioxide emissions per year.
88 !

Source: Frontier Associates LLC, Energy Efficiency Accomplishments of Texas Investor Owned Utilities, Calendar Year 2011

TX80RHB 3693: Enhancing Energy Efciency

TX80RHB 3693 included a host of programs designed! to help reduce electricity usage in Texas. ! Raises energy efciency goal for electric utilities from 10% of annual demand growth to 15% in 2008 and 20% in 2009.! PUC will study energy efciency programs by January 15, 2009, and submit a report to the legislature. !
The study shall address whether utility energy efciency programs should continue and whether energy efciency programs are best provided by the competitive market.! The ndings of the study will determine whether a goal increase to 30 percent is achievable by 2010 and 50 percent by 2015.!

PUC will work with ERCOT to develop a method to account for projected energy efciency impacts in ERCOTs forecasts of future capacity, demand, and reserves. !

89 !

TX80RHB 3693: Enhancing Energy Efciency!

!

The bill also includes:!

an energy efciency cost recovery factor;! a utility nancial incentive for exceeding goals; and! the ability for utilities under a rate freeze to defer recognition of these costs.! Provisions aimed at reducing energy consumption by schools and government buildings.! Stronger, more energy-efcient building standards for low-income housing.! Creates an annual sales tax holiday during Memorial Day weekend for energy efcient products that bear the designation of the nationwide Energy Star program.

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Benets of Advanced Metering

Advanced meters and other new technologies and associated infrastructure will provide information and opportunities that will enable customers to better understand the impact of controlling their energy consumption. By controlling their energy consumption, customers can better manage their bills and lessen their environmental impact. Advanced meters will allow for more automation of utility functions such as meter reading and connections/disconnections, which help to reduce costs.

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The Smart Grid Transforms the Way We Buy, Deliver and Use Electricity

Key Stakeholder Electric Utility

Benefits
Automated meter reading Improved system reliability and greater ease/timeliness of power restoration Improved line fault detection and diagnostics Real time grid feedback allows for more effective loading of utility assets Enables increased monitoring and diagnostics to enhance the life of utility assets Electric reliability improvements Friendly access to detailed consumption information to make informed choices and enable faster transactions Enables and promotes energy conservation Efficient switching and connections/disconnections Expands retailers ability to offer new products Establishes platform to offer future home appliance monitoring and control Allows retailers to offer pre-payment programs Efficient switching and connections/disconnections Enables demand-side management Facilitates integration of solar and wind generation into grid Promotes energy efficiency through immediate energy consumption awareness Facilitates reduced electric consumption which leads to reduced power plant emissions

Consumers

Retailers

Environment

92

Advanced Metering Activities in Texas

The approved deployment plan for CenterPoint Energy called for installation of advanced meters over five years beginning in March 2009. In 2009, CenterPoint Energy received a Federal Smart Grid Investment Grant that enabled the deployment to be completed in 2012. CenterPoint completed installation of approximately 2.2 million meters throughout its service territory in mid-2012. Oncors approved deployment plan initiated in late 2008 will have installation of advanced meters completed by the end of 2012. As of August 31, 2012, Oncor has installed over 3 million meters. The AEP Texas deployment plan was approved in December 2009 and installation of advanced meters will be completed by the end of 2013. Over 600,000 meters have been installed as of August 31, 2012. TNMP began installation of advanced meters in September 2011. As of August 31, 2012, over 57 thousand have been installed.

93 !

Competitive Retail Electric Market! in ERCOT !

94 !

The ERCOT Competitive Retail Electric Market is Providing Strong Customer Benets! Key Takeaways
Price offers are substantially lower than prices available just before competition began, especially when adjusted for inflation. Retail electric prices have fallen even as other energy commodity prices such as gasoline, crude oil, natural gas and coal have risen. Texas national electric price ranking has improved since the market opened in 2001. Every competitive area in ERCOT has variable and 1-year lock offers available that are far lower than the national average price and nearly all state averages. Among states like Texas that depend heavily on natural gas for power generation, Texas prices compare favorably, with even lower prices available to those in the competitive market. The ERCOT market provides efficient market prices that track natural gas prices. Since 2007, Texas prices have fallen while other states prices have risen.
95

Lower Prices Available Today than Before Competition Began

Service Area

Lowest Fixed-Price Offer (12-month term)

Lowest Available Offer 6.3/kWh 5.7/kWh 5.2/kWh 4.7/kWh 5.4/kWh

Dec. 2001 prices, not adjusted for inflation 9.6/kWh 10.0/kWh 10.4/kWh 9.7/kWh 10.6/kWh

Dec. 2001 prices, adjusted for inflation

AEP Texas Central AEP Texas North CenterPoint Energy Oncor TNMP

9.2/kWh 8.5/kWh 9.0/kWh 8.2/kWh 8.5/kWh

12.5/kWh 13.1/kWh 13.6/kWh 12.7/kWh 13.9/kWh

Sources: PUC Historical Data, Bureau of Labor and Statistics, www.powertochoose.org offers as of January 2, 2013

96

Texas National Price Ranking Has Improved Since 2001

2001 State Ranking (Pre-Competition)

18 16

/kWh

14 12 10 8 6 4 2 0

KY

VA

PA

MT

AK

WI

WY

MO

WA

WV

OK

AZ

GA

MS

MA

VT

MI

IA

ME

KS

TX

IL

CO

FL

LA

NM

NJ

DE

CA

RI

NE

NV

SC

AR

MN

OR

MD

DC

NC

OH

ND

CT

October 2012 State Ranking (Latest Available)

26 24 22 20 18 16 14 12 10 8 6 4 2 0
Average lowest 12month fixed price offer in competitive market in Oct. 2012: 8.7/kWh

/kWh

Source: EIA average annual residential rates for 2001 and October 2012 monthly data (latest available information). Average lowest available price from powertochoose.org Web site as of October 1, 2012 for a residential customer using an average of 1,000 kWh per month.

LA WA ID AR ND UT KY MO OK OR WV MS WY TN NE MT SD GA IN IA VA KS TX CO NC AZ NM MN FL AL SC IL OH NV DC PA MD WI RI MI MA CA DE ME NJ NH AK CT VT NY HI

NH

NY

UT

TN

SD

AL

ID

IN

HI

97

CENTS&PE&R&KWH&
10" 12" 14" 16" 18" 20" 0" 2" 4" 6" 8"

Every Competitive Area in ERCOT Has Variable and 1-Year Lock Offers Available that are Lower than the National Average Price

Na?onal&Average&

RESIDENTIAL&RETAIL&ELECTRICITY&PRICES" All&Data&from&October&2012&

LOWEST"DALLAS/FT"WORTH"PRICE" LOWEST"HOUSTON"PRICE" LOWEST"ABILENE"PRICE" LOWEST"LEWISVILLE"PRICE" LOWEST"CORPUS"CHRISTI"PRICE" LOWEST"ABILENE"PRICE";"1"YR"FIXED" LOWEST"DALLAS/FT"WORTH"PRICE";"1"YR" LOWEST"LEWISVILLE"PRICE";"1"YR"FIXED" Louisiana" Washington" Idaho" LOWEST"HOUSTON"PRICE";"1"YR"FIXED" LOWEST"CORPUS"CHRISTI"PRICE";"1"YR"FIXED" Arkansas" North"Dakota" Utah" Kentucky" Missouri" Oklahoma" Oregon" West"Virginia" Mississippi" Wyoming" Tennessee" Nebraska" Montana" South"Dakota" Georgia" Indiana" Iowa" Virginia" Kansas" Texas"(Statewide)" Colorado" North"Carolina" Arizona" New"Mexico" Minnesota" Florida" Alabama" South"Carolina" Illinois" Ohio" US"AVERAGE" Nevada" District"of"Columbia" Pennsylvania" Maryland" Wisconsin" Rhode"Island" Michigan" Massachuse[s" California" Delaware" Maine" New"Jersey" New"Hampshire" Alaska" Connec]cut" Vermont" New"York" Hawaii"

Sources: PowerToChoose.org offers as of October 1, 2012, U.S. Energy Information Administration, latest available data 98

Offers in Competitive Areas Compare Well With Prices in Other Areas of the State With Other Market Structures

Sources: Phone surveys conducted November 29, 2011; Power to Choose Web site, November 29, 2011; PUC Bill Comparisons (Data is October 2011)

/kWh

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Retail Electric Price Offers Have Fallen Even as Other Energy Commodity Prices Have Risen

320%

209%

Percentage Change in Commodities December 2001 November 2012

101%

43%

31% -13% -41%

Oil

Gasoline

PRB Coal

Natural Gas

Inflation

ERCOT Avg. Low Fixed Offer

ERCOT Avg. Lowest Offer

Sources: Public Utility Commission of Texas, U.S. Energy Information Association, NYMEX Commodity Exchange, Bureau of Labor Statistics, Power to Choose Notes: Commodity prices latest available as of November 13, 2012. Inflation covers period from 2001 to 2012

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ERCOT Generation Mix Compared to U.S. Average!

ERCOT Energy (MWh)
Wind Other
1%

U.S. Average
Renewable (Mostly Hydro) Nuclear Petroleum
1%

8%
Nuclear

9% 38% 20%
Natural Gas

Natural Gas

21%

13%

40%
Coal Wind Other

48%
Coal Renewable (Mostly Hydro) Oil

Capacity (MW)

Nuclear

11% 6% 22%

2%

6% 14% 39%

Natural Gas

Coal

Nuclear

10% 31%

59%
Natural Gas Coal

Note: Oil-fired generation is negligible in ERCOT, accounting for less than 0.1% of ERCOT capacity and load; numbers may not add up to 100% due to rounding. Sources: ERCOT (2010 data)

101

ERCOT far More Dependent ! On Gas Than Neighboring Power! Regions!

% MWh from Natural Gas % MWh from Coal % MWh from Nuclear % MWh from Hydro % MWh from Other

102

Texas Market Compares Favorably to Other States Utilizing Natural Gas as the Primary Generation Source!
Average Residential Electric Price Among Natural GasIntensive States
October 2012 (Latest Available Consistent Data) 20.00 18.00 16.00 14.00 12.00

Average Lowest Available 12Month Fixed Price Offer in ERCOT Competitive Market (October 2012): 8.7/kWh

/kWh

10.00 8.00 6.00 4.00 2.00 0.00 NY AK ME CA MA RI NV FL TX MS LA

Sources: Energy Information Administration (data as of October 2012); EIA natural gas-intensive states; powertochoose.org as of October 1, 2012 Note: Texas statewide average price includes prices from both competitive and regulated areas of the state. 103

ERCOT Market Providing Efficient Market prices

NYMEX natural gas and residen1al electricity prices January 2007 October 8, 2012; mixed measures
NYMEX natural gas ($/MMBtu)
$14 $12 $10 $8 $6 $4 $2 $0
NYMEX Average 12-Month Strip Average Compe11ve Oer Average Lowest 12 Month Fixed Oer Average Lowest Oer

32

ResidenBal electricity (/kWh)

24 20 16 12 8 4

28

4/21

5/11

11/19

3/30

6/15

9/23

12/8

2/23

7/27

3/15

8/16

1/17

3/21

1/1

6/1

11/1

8/22

1/23

6/25

10/12

2007
1

2008

2009

12/28

2010

2011

2012

Average electric offers across the 5 TDSPs for residential customers using an average of 1,000 kWh per month. Excludes any 0.0/kWh introductory offers. 104 Sources: NYMEX; www.powertochoose.org

9/10

11/7

9/4

2/4

7/7

6/6

4/9

Since January 2007, Texas Prices Have Fallen While Others Have Risen

Residential Price Changes (%) - Jan 2007 - July 2012

65

45

Gas-Dependent States (excl. TX) 2% Texas -8%

Restructured States (excl. TX) 18%

US Average (excl. TX) 23%

25

5
TX Competitive MA CT TX Statewide LA ME RI Natural Gas States (-TX) CA NV FL NH DE IL NY MS AR Restructured States (-TX) DC US (-TX) VT NC PA WA WI NJ SC IN MT OK TN IA KY AK OR AL MD CO MN OH UT VA AZ SD WY NM GA MI WV ND KS ID MO HI NE

-15

-35

Lowest Competitive Offer Prices in Texas -28%

Source: EIA average annual residential rates for January 2007 and July 2012 (latest available data), powertochoose.org for January 2, 2007 and July 15, 2012

105

Protections in the Market for Retail Customers

Among other requirements, REPs serving residential customers must:
Register with the PUC and meet financial requirements set by the Commission Communicate clearly with consumers regarding notice of contract expiration Demonstrate creditworthiness to purchase power to serve its customers Demonstrate the technical ability to supply electricity Maintain privacy of customer information Not discriminate among customers Not add charges to a customers electric bill for services not requested by the customer Provide a Your Rights as a Customer disclosure Provide an Electricity Facts Label to allow for an apples-to-apples comparison among REPs Make deferred payment plans available for those expressing an inability to pay Provide the LITE-UP discount for low-income Texans during summer months Make Spanish-language support available to customers Place customer deposits in interest-bearing accounts and return that interest to customers when the deposit is returned Follow a mandated timeline for disconnection of customers Provide notice in case of disconnection Investigate any customer complaint within 21 days Provide a Terms of Service Statement detailing contract terms, cancellation penalties, deposit requirements, fees, payment arrangement options, how to cancel service, and other obligations of the REP Allow a customer to cancel a service agreement within three federal business days after receiving the terms of service Allow a customer to cancel the switch upon receiving notification that the switch will occur Even this brief sampling of regulations highlights that customers are protected
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Benets for Qualied! Customers: REP Programs!

Several retail electric providers across the state also provide additional, voluntary programs to assist low-income customers.
In 2011, nearly $800,000 in bill payment assistance was committed to Reliant's CARE program. Nonprofit social service agencies review customer cases and qualify customers CARE funds based upon the agency's designated hardship criteria. In addition, more than a dozen Beat the Heat Centers were offered by Reliant in Corpus Christi, Dallas and Houston to provide heat relief in high-need areas. Below is information on several programs offered by TXU Energy. TXU Energy operates TXU Energy Aid, the largest bill-payment assistance program among electricity companies in the nation. The company committed $25 million over 5 years (through 2012) to this program which has helped over 390,000 Texas families since 1983. TXU Energy also works collaboratively with ~1,000 agencies across the state to assist customers in need. In addition, TXU Energy uniquely provides a self-funded, year-round low-income customer discount of ~10 percent. The company committed $125 million over 5 years (through 2012) for this program which assisted over 150,000 customers this summer. Since 2008, the company has also helped 18,000 low income households reduce their energy consumption through grants invested in energy efficiency improvements. Since September 2006, several REPs have participated in the low-income credit program resulting from CenterPoint Energys 2006 rate case settlement. This program is currently providing a credit of $7.68 per month to eligible customers.

Texans can check their electric providers Web site or call their provider to see what other programs are available.

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